The Union Budget 2023 was presented by the Finance Minister today. The Budget aims to provide tax benefits to the hard-working salaried class by making numerous changes to tax rates impacting taxpayers at the lowest and the highest tax rates, under the new tax regime. This regime was introduced in 2020 and provides lower tax rates to taxpayers who do not avail of any exemptions or deductions. It is now being made as the default tax regime unless the taxpayer chooses to be governed under the old regime.

Under the new tax regime, the level of income up to which no tax is payable is proposed to be increased from earlier Rs. 5 lacs to Rs. 7 lacs by proposing to increase the tax rebate available u/s 87A of the Income-tax Act, 1961 ('Act'). Further, the tax slabs under the new tax regime have undergone a big change with a reduction from 6 to 5 slabs and a basic exemption limit increased to Rs 3 lakh, up to which there is no tax liability.

The revised tax rates under the new tax regime are proposed as under:

Taking cognizance of the fact that India is one of the countries where tax rates are amongst the highest in the world, the Budget has, in addition to changes to the tax slabs, proposed to reduce the maximum rate of surcharge from 37% to 25% (under the new tax regime), thereby, bringing the maximum marginal rate of taxation down to 39% from 42.74% for the country's highest taxpayers having taxable income of more than Rs. 5 crores.

The standard deduction for salaried and pension class taxpayers has been extended to the new tax regime. Salaried non-government employees, who receive leave encashment payment on separation from the company, may now enjoy a tax exemption up to Rs. 25 lacs, a whooping increase from the earlier Rs. 3 lacs.

Taxpayers earning professional income can avail of the scheme of presumptive taxation if the gross receipts do not exceed Rs.75 lakh provided that not more than 5% of the gross receipts during the year are received in cash.

With regard to capital gain taxation, it is proposed that interest on borrowed capital, which is claimed as a deduction under the head income from house property u/s 24 of the Act, is excluded while determining the cost of acquisition of such house property at the time of calculating capital gains.

Further, in respect of exemption from capital gain taxation for the amount invested in a property referred to in Section 54 / 54F of the Act, the exemption is now proposed to be capped to Rs. 10 crores, a move which is likely to hit high net worth investors.

The Budget seems to attract and enhance the common taxpayers' sentiments by providing numerous tax benefits. However, one needs to be mindful that these benefits are only available to taxpayers who do not choose to file the tax return under the old tax regime. The tax slabs and rates under the old tax regime remain the same. One may need to determine the more beneficial regime, on a case-to-case basis as it may seem that if a person is eligible to claim a deduction of more than Rs. 425,000, then the old regime is more beneficial, without considering the effect of surcharge reduction that is available for taxpayers having income above Rs. 5 crores.

Apart from changes to tax rates, the Budget also committed to introducing a new-gen common income-tax return for the taxpayers, deploying additional officials for the disposal of small appeals and strengthening the grievance redressal mechanism for taxpayers.